Colombian Hospitality recovers and must overcome uncertainties to establish itself

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Colombian Hospitality recovers and must overcome uncertainties to establish itself
Alejandro Morales
Source: GMH
December 22, 2021

Alejandro Morales, executive vice president of the GMH chain analyzes the market situation in the country

Hotel activity, one of the hardest hit by almost two years of the pandemic, has been shaken in the last semester of 2021 and is beginning to show noticeable symptoms of frank recovery.

However, according to Alejandro Morales, spokesman for the German Morales Hotels Organization, which is in charge of 12 hotels with more than 750 rooms, it is not the time to claim victory. In his view, the performance of the activity in the immediate future will depend on the control and evolution of covid-19, as well as the first half of the 2022 electoral year.
The hotel expert, points out that both the new dynamics in which the activity unfolds and the platforms, have given a 180 degree turn to the way of developing and staying in the business. In the particular case of the Germán Morales Hotels Organization, the recent challenges that have been faced leave as a result a hotel company afloat and adjusted to the circumstances, not only in the face of the evolution of the pandemic, but also to the realities of the market .

What is the real situation of the hotel sector at this time, after the high season of the pandemic and when will we see a sustained reactivation?
The reactivation depends on the area and the city in which the hotel activity takes place. It is generally a reflection of the GDP growth that is estimated to be close to 10% for the year.
There are cases like Santa Marta and Medellín where they show a more accelerated reactivation. Bogotá has also recovered, but not at the same speed as other cities. It is because it is a city that serves the corporate market and foreign tourism, areas that have not been very dynamic since the beginning of the pandemic.

There is talk of high occupations, even higher than those that existed before the pandemic. Is this really true? Does it occur in the hotels of the GMH chain?
At GMH, post-closing expectations have been higher than expected. The analysis must be divided into two parts, a difficult first half of 2021, and a much better second, where recovery is evident.

Are the occupations of the moment due to a market reality or to a bubble that emerges from the attitude of many to go out, travel, move, after not having been able to do so for almost a year and a half?
We believe that household spending has driven growth. Another trend is that more and more national clients are reaching the hotels.

Until when will the spending capacity arrive? It is possible that this level of household spending will not be maintained in 2022 and therefore the occupancy rates will resume their historical behavior. It is expected that by 2023 the rate level prior to the pandemic will recover. The national traveler is looking for safe destinations, new experiences, etc.
And an interesting point is that the rates in this second semester are lower not only real, but also nominal than those of 2019. Depending on cities and destinations, we have some even 40% below those charged in that year and are offset with more occupation.

You said a few months ago that the 2019 occupations would only occur again in 2023, do you maintain this theory?
Historically, the election year has always hit the economy and the hotel sector in particular. Today, the level of uncertainty is higher, investments are being held back and decision-making is postponed. There is no clarity on who will win the presidency and this increases the concerns of the business community in all sectors. It is not known for sure what some of them would do, if they came to power.
Apart from the pandemic, the hotel sector continues to face the rate problem. After so long with this situation, have you found a strategy to combat it and make a better regulated market?
We have a before and after the development of electronic channels. For example, corporate hotels and tourism used to move with sales forces. The offer came directly through tour operators and was distributed with large networks throughout the world.
Now our situation has radically changed because we are facing the age of the consumer experience. In other words, hoteliers in general no longer control the market, it is the customer who decides. Users choose and decide the accommodation. Many companies cut accommodation costs, hand over the travel budget directly to their executives and leave them free to choose where they stay. This is something that had already been happening before the pandemic. During the pandemic and the stage that we are experiencing, this trend was accentuated.
In the case of us, who are a national chain, we defend ourselves from the competition of the big chains thanks to the platforms. Adapted to this new reality, we have increased reservations, sales and volumes.

Regarding regulation, should the government intervene in rate control to counteract the war that is going on at the moment?
In such an open market it is impossible. If they were to impose regulations and controls, we would be in front of a flower of a day, because immediately the competition would manage to cope with these measures.
Another interesting aspect to observe is that the devaluation in Colombia has slowed the departure of the average tourist abroad. And on the other hand, we find rates of up to $ 90 in a five-star hotel in the local market. This encourages the foreign market, while the restrictions on entering the country are feasible to comply with.

We are warned by this pandemic from which it is not known if we are leaving or are back, that this may happen again. What media has GMH adopted financially, logistically, and operationally for another similar situation? 
The decisions today would be very different. In the first year of the pandemic, hotels were closed, contracts were suspended, the security category was reduced and lower costs and expenses were adopted. Today, the same cannot be done again, we do not see possible that the government is going to close the economy. What we have now is an experience to handle the situation and the closings, if any, would be very punctual and occasional. Taking care of costs and expenses, as well as going from fixed to variable will be a constant in the hotel business.

Did the pandemic change hotel operations in any way?
Without a doubt. In our case, it gave way to the work-at-home experience. Paradigms were changed and we were able to turn towards online culture, which has given very favorable results in increasing productivity. Under this modality, the meetings get to the point and the levels of responsibility have been increased.

You predicted the oversupply of hotels after the end of the tax exemption that led to the construction of so many, is what the hotel industry experiences today is a product of that situation?
As of 2019 there was still an oversupply, caused by benefits that were established in the 2002 law. This oversupply is widespread between 2013 and 2017, the year in which the effects of the aforementioned law end. In this period there appears what I call 'paratroopers' who were attracted by the hotel boom, but who are currently suffering. And although there was a later extension, it was not so striking,

How to effectively face the competition with informal leases and platforms?
The hotel industry has to transform. For example, for our case Booking is a distribution channel. Airbnb, by contrast, is direct competition and the growth has been monstrously large. In Bogotá, there are, compared to the formal hotel offer, about 50% of units that are being rented by Airbnb. Faced with increasingly demanding customers, the general trend of traditional hotel activity is to strengthen in service and in the quality of the experience to stay in the market.

How effective have the government reliefs been for hotel business?
The VAT exemption is until 2022. And in this I want to be emphatic in highlighting the opportunity and effectiveness of the reliefs, recognizing, without a doubt, the efforts of President Iván Duque and his ministries of Commerce, Industry and Tourism, as well as that of Finance. . It is an excellent example of good communication between the government and the private sector.   

What are the destinations for new hotel developments in the country?
In our case, during the pandemic, I can point out that the projects were kept in the drawer, because the important thing was to save the company. For now, we will wait for the situation to stabilize, there is political clarity at the end of the first half of 2022, and we will look at business opportunities and consumer trends.

When do you estimate that a true recovery in activity will be observed?
This is like putting a leaf in the wind to see how it moves. In any case, we estimate that by 2023, unless other variants of covid-19 come out and we go backwards. But in the case of Colombia, we see the performance in vaccination and prevention to date as very positive.

What are the trends in the hotel industry and how to take advantage of them?
The general trend is that the market is recovering due to the effect of occupation and household consumption. There are markets that we did not know. Now the challenge is to maintain them and regain a corporate market that cannot be lost.

What will the return to normalcy in business and convention tourism depend on?
As long as the pandemic does not normalize in the countries of the first world, we will undoubtedly continue to be affected.


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